Part 1Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States is true? Part 2
A. Financial intermediaries such as banks are the least important source of external funds for businesses B. Since 1970, more than half of the new issues of stock have been sold to American households C. Bonds are a far more important source of financing than are stocks D. Stocks and bonds combined supply more than one-half of the external funds

Question

Part 1Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States is​ true? Part 2
A. Financial intermediaries such as banks are the least important source of external funds for businesses B. Since​ 1970, more than half of the new issues of stock have been sold to American households C. Bonds are a far more important source of financing than are stocks D. Stocks and bonds combined supply more than​ one-half of the external funds

BlackTom AI · Accepted Answer

The question asks which statement about external sources of financing for nonfinancial U.S. businesses is true, so we must evaluate each option against standard finance facts.
Option A: 'Financial intermediaries such as banks are the least important source of external funds for businesses.' This is misleading. In the U.S., banks and other financial intermediaries are a major channel for external funds, including loans and credit lines, even though equity markets also play a role. Labeling banks as the least important contradicts their well-established role, so this option is false.
Option B: 'Since 1970, more than half of the new issues of stock have been sold to American households.' While households do hold a substantial share of stock, the claim that they have sold more than half of all new stock issues since 1970 overstates household participation in new equity issues. Institutions, foreign buyers, and funds also play large roles. Therefore this statement is inaccurate.
Option C: 'Bonds are a far more important source of financing than are stocks.' This aligns with typical funding patterns for nonfinancial firms in the United States, where debt financing via bonds and bank loans historically constitutes a larger external funding channel than equity financing from new stock issues. The proportion of external funds raised through debt often exceeds that raised through equity, making this statement true in standard benchmarks.
Option D: 'Stocks and bonds combined supply more than one-half of the external funds.' While both instruments contribute significantly, the combined share being definitively above one-half would depend on time period and market conditions. In many periods, the debt share alone approaches or exceeds half, but the claim that together they consistently supply more than half is not universally guaranteed and may be too strong a generalization, making this option questionable.
In summary, Option A is incorrect because banks are not the least important; Option B is incorrect due to overstated household dominance in new stock issues; Option D makes a broad universal claim that may not hold across all periods; Option C correctly asserts that bonds are a more important external financing source than stocks in typical U.S. nonfinancial corporate finance patterns, reflecting the prominence of debt financing.

Homework:Chapter 8 Homework

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